Math behind pip value?

Hi all, i am struggling to find how to do the calculation to find the pip value for the Forex pairs.
My account is in euros and my broker has 5 decimals.
For pairs where the base currency is the euro i think it would be:
i.e. EUR/USD = 1.38000
1 pip value= (0.0001/1.38000)*1000 (for a micro lot or 0.01 lots)= 0.072463 euros per pip.
I do not understand why it is 0.0001/1.38000 instead of 0.00001/1.38000 because my broker offers 5 decimals.
Also, can anyone explain me how would be the math for another pair where the euro is not the base currency or even worst, when the euro is not in the pair as in usd/chf?
Thank you very much in advance and sorry for my English.

Hello, darodi

Welcome to the forum.

In every case, a pip-value is determined by (1) the cross-currency (not the base currency) in the pair being traded, and (2) by the account currency (in your case, euro).

If you are trading the EUR/USD in a euro-denominated micro account, then the equation you wrote is correct.

You have written: 1 pip = (0.0001/1.38000)*1000

That equation gives us [B]1 pip = €0.072463[/B], which your broker most likely will round down to €0.07

Your equation could be rearranged to read: 1 pip = 0.10 / 1.38000. The numerator is 0.10 because it denotes a pip-value of \$0.10 per pip in a USD-denominated micro account. The denominator is 1.38000 because that is the current EUR/USD exchange rate, which converts the pip-value to euro.

In the re-written equation, the numerator is not affected by the number of digits in the quoted exchange rate. For example, suppose the EUR/USD = 1.38123. If your broker quotes prices in 5 decimals, then 1 pip = 0.10/1.38123. If your broker quotes prices in 4 decimals, then 1 pip = 0.10/1.3812 (which would not change the effective pip-value after rounding down).

Later, I will post a table of pip-value equations, which you might find to be helpful.

Thank you very much for your help Clint. How about in pairs where there is no eur in the quote?

In any currency pair that you are trading, the pip-value is determined by B lot size [/B](standard, mini, micro or nano), B the cross-currency[/B] (also called the quote currency) and B the account currency[/B] (which, in your case, is euro).

In every case (except yen-pairs), when the [B]cross-currency[/B] of the pair being traded and the [B]account currency[/B] are the [B]same[/B], then the pip-value will be [B]10 units of the account currency per standard lot traded.[/B] These are referred to as [B]fixed pip-values.[/B] All other pip-values are [B]floating pip-values,[/B] so called because they vary with exchange rates.

So, for example, trading the GBP/USD in a \$-denominated (standard) account, 1 pip = \$10. Trading the EUR/GBP in a £-denominated (standard) account, 1 pip = £10. And trading the USD/CAD in a C\$-denominated account, 1 pip = C\$10.

Because the yen has a tiny unit-value compared to most other currencies, a multiplier (100x) is applied to pip-value calculations for yen-pairs. So, for example, trading the GBP/JPY in a ¥-denominated (standard) account, 1 pip = ¥1,000. Notice that, in all yen-pairs, [B]the JPY is always the cross-currency, never the base currency.[/B]

Returning to one of your questions — specifically regarding your €-denominated account, you asked about [B]pip-values for pairs which do not involve the EUR.[/B] By international agreement, in all EUR-pairs, [B]the EUR is always the base currency,[/B] never the cross-currency. Therefore, it doesn’t matter whether the pair in question involves the EUR or not, because the base currency does not determine the pip-value. There are [B]no fixed pip-values in a €-denominated account;[/B] in a €-denominated account, for every pair — whether it includes the EUR, or not — the pip-value will float (vary with currency exchange rates).

I think this will give you everything you could possibly want to know about pip-values:

Table of Pip-Value Formulas for a Euro-Denominated Standard Account

(trading standard lots - 100,000 units of base currency)

EUR/AUD, or any pair of the form XXX/AUD ----- 1 pip = €10 divided by EUR/AUD

EUR/CHF, or any pair of the form XXX/CHF ------ 1 pip = €10 divided by EUR/CHF

EUR/DKK, or any pair of the form XXX/DKK ----- 1 pip = €10 divided by EUR/DKK

EUR/GBP ------------- (see note #4) ------------- 1 pip = €10 divided by EUR/GBP

EUR/JPY, or any other yen-pair (see note #5) — 1 pip = €1,000 divided by EUR/JPY (also, see note #6)

EUR/NOK, or any pair of the form XXX/NOK ----- 1 pip = €10 divided by EUR/NOK

EUR/NZD, or any pair of the form XXX/NZD ----- 1 pip = €10 divided by EUR/NZD

EUR/SEK, or any pair of the form XXX/SEK ------ 1 pip = €10 divided by EUR/SEK

EUR/USD, or any pair of the form XXX/USD ----- 1 pip = €10 divided by EUR/USD

[B]Notes[/B]

[B]1.[/B] For mini-lots, divide the pip-values calculated above by 10.

[B]2.[/B] For micro-lots, divide the pip-values calculated above by 100.

[B]3.[/B] For nano-lots, divide the pip-values calculated above by 1,000.

[B]4.[/B] The EUR/GBP is the only GBP-pair in which the GBP is the cross-currency. In all other GBP-pairs, the GBP is the base currency.

[B] 5.[/B] All yen-pairs have the same pip-value, because, in all yen-pairs, the JPY is always the cross-currency.

[B]6.[/B] To calculate the pip-value of a yen-pair, we start with €1,000.00 (instead of €10) and divide it by the current price of the EUR/JPY. The difference is because in all yen-pairs, one pip is represented by the second decimal place in the price; whereas, in all non-yen-pairs, one pip is represented by the fourth decimal place in the price.

Hi Clint,

Thanks for this valuable post above. Currently I’m not yet that experienced in forex and therefore trying to put this info into practice, but still making some mistakes in my calculations I think. Could you provide some guidance?

[B]My setup:[/B]

• trading the EUR/USD in a euro-denominated micro account (0.01)

• analyzing following trade and trying to calculate the profit of [B]16,10000[/B]:

[B]#[/B]
[B]time[/B]
[B]type[/B]
[B]order[/B]
[B]lotsize[/B]
[B]price[/B]
[B]sl[/B]
[B]tp[/B]
[B]profit[/B]
[B]balance[/B]

5
2013.10.11 11:57
2
0,46
1,35648
1,35191
1,35683
0,00000
693,07000

6
2013.10.11 12:00
t/p
2
0,46
1,35683
1,35191
1,35683
[B]16,10000[/B]
709,17000

[B]My profit in pips?[/B]
Profit, in pips = 1,35683 - 1,35648 = 0,00035 points or 3,5 pips

[B]How much is each pip worth in euro?[/B]
1 Pip-value = €10 divided by the price of the EUR/USD at the time the trade was closed divided by 100 for micro-lots (from the table above)
1 Pip-value = €10 / 1,35683 / 100 => €0,0737012005925577 per pip, per micro-lot

[B]How much profit did I earn, in euro, on this trade?[/B]
Profit, in euro = 3,5 pips x €0,0737012005925577 per pip per micro-lot x 46 micro-lots (0,46 lots * 100) = [B]€11,8659[/B]

The thing is that [B]€11,8659[/B] is not equal the profit of [B]16,10000[/B] ?

Hello hgroup,

Welcome to this forum. Your math is perfect, except for one small error, which you [I]finessed:[/I] In your calculation of profit, you referred to your position size as 0.46 micro lots (that is, 0,46 micro lots, as you Europeans write it).

Actually, it’s 0.46 standard lots = [U]46 micro lots.[/U] However, somehow when you did the actual calculation, you got the correct result.

Just to make sure we’re both working with the same data, here’s your trade as I understand it (using American-style decimal points, instead of commas):

You traded (LONG) 46 micro lots of EUR/USD, entering at 1.35648 and exiting at 1.35683 for a pip-profit of 3.5 pips.

I think we agree, up to this point, right?

Now, here’s the strange part:

You said that your account is denominated in EUR, but the profit number shown in the box implies that your account is denominated in USD. You can confirm this by the following calculation:

Profit in USD = 3.5 pips x \$0.10 per micro lot x 46 micro lots = \$16.10

The profit number shown in the box implies that your starting balance was \$693.07, and after adding your profit of \$16.10, your ending balance was \$709.17.

I see only two possible explanations for your dilemma:

[B]Either this is a USD-denominated account, or the profit number shown in the box is wrong.[/B]

Hi Clint,

Thanks for your reply. I provided indeed some incorrect info about the amount of the micro-lots. I wrote 0,46 but in my excel, I indeed multiplied with 46 and therefore getting the correct result. I also edited my above post to the correct info.

I checked the account details; it’s telling me that it’s a €50k demo account but I’m pretty convinced now that this is a USD-denominated account since your remarks and calculations make perfectly sense. On the other hand; it could maybe also be a problem of my MT4 client because i did a second test which was giving again some unexpected results:

[B]My setup:[/B]

• trading the EUR/USD in a usd-denominated micro account (0.01)

• analyzing following trade and trying to calculate the loss of [B]-306,93[/B]:

[B]#[/B]
[B]time[/B]
[B]type[/B]
[B]order[/B]
[B]lotsize[/B]
[B]price[/B]
[B]sl[/B]
[B]tp[/B]
[B]profit[/B]
[B]balance[/B]

2
2013.10.08 17:48
1
0,67
1,36056
1,35600
1,36091
0,00000
1000,00000

3
2013.10.09 09:06
s/l
1
0,67
1,35600
1,36091
1,35683
[B]-306,93[/B]
693,07000

[B]My profit in pips?[/B]
Profit, in pips = 1,35600 - 1,36056 = -0,00456 points or 45,6 pips

[B]How much is each pip worth in dollar?[/B]
1 Pip-value = \$10 / 1 / 100 => \$0,10 per pip, per micro-lot

[B]How much profit did I earn, in dollar, on this trade?[/B]
Profit, in dollar= 45,6 pips x \$0,10 per pip per micro-lot x 67 micro-lots (0,67 lots * 100) = [B]\$-305,52000[/B]

The thing is that [B]-305,52[/B] is not equal the loss of [B]-306,93[/B] ?

Or aim I missing something again?

You took a LONG trade in EUR/USD and lost money. You have correctly indicated your pip-loss (-45.6 pips) and the corresponding dollar-loss (-\$305.52).

I suspect that the other figure you are reporting (-\$306.93) includes something other than your trade loss; it may be a negative roll-over charge.

The first trade you reported (in post #5) was opened and closed within about 3 minutes around midday, so it involved no roll-over charge.

The trade you are asking about now (the one in post #7), however, was open for 15 hours 18 minutes, and extended over two calendar days. The roll-over charge on [U]long EUR/USD[/U] trades is [U]negative[/U], meaning that you pay the interest differential, rather than earning the interest differential (as you would do on a [U]short EUR/USD[/U] trade).

I’m guessing that the -\$1.41 in additional “loss” which you can’t account for is actually a negative roll-over charge.

In the future, when you have questions like this one, it might be helpful to post a screen-shot of your account statement, rather than the hand-made table of figures which you have posted here.

Very nice and educative however i need 2 more confirmations to be able to fully understand this:

1. if i have a GBP/JPY or any XXX/JPY pair/s the same principle is applicable like you mentioned for EUR\JPY above; so to calculate pip value for pair GBP/JPY the math i like this: 1 pip = E 1000 divided by the GBP/JPY?
Also your Note 5 says pip value the same for yen pairs then if this is the case the pip value for a GBP/JPY can be easily calculated like this 1 pip = E 1000 divided by the EUR/JPY right ??

2. what if a have 5 lots instead of 1 instead of 10 value i need to used 50 or how to calculate when i have more then 1 lots?

Thanks
mihai

For one standard lot (100,000 units of base currency):

(1) if your account is denominated in EUR, then the pip-value for any yen-pair is: €1000 ÷ EUR/JPY

(2) if your account is denominated in GBP, then the pip-value for any yen-pair is: £1000 ÷ GBP/JPY

(3) if your account is denominated in XXX, then the pip-value for any yen-pair is: X1000 ÷ XXX/JPY

Right. That calculation will give you the pip-value [B]for one standard lot[/B] of GBP/JPY, EUR/JPY, USD/JPY, or any other yen-pair, [B]in a €-denominated account.[/B]

The pip-value for 5 standard lots will simply be [B]5 times[/B] the pip-value for 1 standard lot.

The pip-value for 5 mini-lots will simply be [B]5 times[/B] the pip-value for 1 mini-lot.

And so forth.

Thanks

Ok one more question :7:

What about pip calculation for the same eur denominated account but for commodities and indices like gold and S&P500?

As per MT4 symbol proprieties says Profit calculation mode = CFD but i do not know how to calculate per CFD.

So if is not to much to ask please bring some light on this issue just like you did sometime ago for currencies with some example and the logic behind

BR
Mihai

Nothing nobody knows this ?!

BR

Mihai